>> this is bloomberg markets with alix steel and guy johnson. ♪ alix: it is 30 minutes into the u.s. trading day. here are the top market stories we are following. say goodbye to a tough week. stocks down friday, is there any

reason to be bullish? high yields highest this month since the pandemic. we spit -- speak to dear says higher farming costs are hurting the man. you've got companies between inflation and a growth scare. welcome to bloomberg markets. those earnings are key. we haven't seen revisions to the weekend demand. guy: i can't remember the last time i heard sparkling in the headline. it is a friday. i think the deer earnings are fascinating. they are second derivative margin pressure. our customers are facing arjun pressure. we are going to suffer, as well. we've got a cost issue.

this is something i think, increasingly, given what is happening with the president in asia is something we have to focus on. there is a lot going on today. none of it is particularly good. you've got the word sparkly in the headline. alix: 1%, the y is in question without one. guy: there was going to be a bounce, a lot of people are describing that to china. i have my doubts. i think we have been beaten up for a number of days. we have got expiry's to get through. we could see a few bumps along the way. our question of the day is a straightforward one. is there reason to be bullish? if there is not any reason to be bullish, is there a reason to be bullish? alix: the metaverse.

guy: to be found in new york for the next three months, joins us now. romain, if we are at the point where there is no good news, is that good news? >> no. if there is no good news, i guess that gives you the general sense that if people are expecting the worst and prepared for the worse, maybe you avoid the worst case scenario. the key phrase is, absolute. if we end up in a situation where a fraction of the worst case scenario ends up becoming a reality, it is going to push the market down well below the current levels we are at. if you look at the economic conditions and the huge slate of economic data we are getting next week, people are going to be in for a shock. not just how bad things are, but how bad sentiment is, that is the driver of the market. close your area of confidence, is at a -21.

these numbers are really bad, whether you are across the atlantic or in the u.s.. i am wondering, how would you answer that question? my husband starts to panic about the fidelity account, is there reason to be bullish? christine: i'm going to say, yes. there is some reason to be, if not bullish fully, a little more optimistic. in some ways, this week felt like the first time we saw two way risk in market. we were talking about risk, that is a signal there is a little bit of normality coming back to markets. that as a lot to do with the catalysts, inflation and how it hits consumers. what the fed is going to be doing with that. that is a sign of markets digesting through big catalysts, coming to grips with that and terms with that.

that means it is not a one way trade in markets. even if it is not a reason to be outright bullish, certainly in longer-term, at the very least offering investors opportunities. as guy said, it is not necessarily a reason to be bearish, there are opportunities to be had in this market. guy: let me take the other side of that. i am flip-flopping. we will go with it. what i am saying in credit, it is starting to look more alarming. i am not entirely sure that equity marke are kind of on board with it or keeping up. we need to separate out which markets we are talking about eared credit is starting to take a turn for the worst. i have heard from a lot of people this is something they are looking out for. now that it is happening, do we start playing catch-up? or is all like to say, catch-up -- ketchup.

kristine: as we see credit spreads widen, we price and what we are seeing from the fed and how that impacts consumers and individual companies. the credit world is more sensitive to. we are not necessarily near crisis levels, we are probably around the levels we saw in the middle of 2020 and the aftermath of covid. romain: i never knew she was this optimistic. when you look at credit, in the u.s. on an aggregate aces, we are up to on hundred 50 basis points on the option of adjusted spread. it is not necessarily the level we are at, but the pace in which we have gone in nearly a month from the beginning of april to where we are today, from roughly 100 basis points to 150 basis points, people saying that is going to continue to move higher

given the economic data we are given. you mentioned the retail earnings we got, were talking about high-risk companies with these retailers, highly leveraged companies, companies that are on the lower end of the credit spectrum. if they are not doing well, you are going to see spreads widen out more before we get to a pace where they level off. alix: it begs the question, where is the fed push? it is not in the equity market, but it has to be something. liquidity, -- guy: is there a fed put? romaine: i do not think so. they have made it clear they want financial conditions to weaken further. they have made that very clear. if you what to talk about the fed put in a more esoteric since, if you see spreads continue to move higher, i am not going to put a number on it. we have had strategist talk

about 200 basis points being the canary in the coal mine for debt. we are not there yet. what happens in between from 150 to 200? guy: the fed poll is interesting. what he talked about was the plumbing, that is his fear. at the moment, the fed is fine. if the fed wants to tighten financial conditions, it wants to do it in an orderly way. we are starting to see liquidity drying up. liquidity has been drying up for a while. is that where you actually get a fed -- i know we are not there yet, but is that where things start to crack? kristine: i have to agree. it will be the plumbing, in the treasury market, as the fed moves on with the timing cycle. it is a reminder to investors that it is not rate hikes we are

talking about when we are talking about fed policy normalization. there are all those balance sheet questions. it is important to pay attention to -- in a way, that is going to be the self alluding mechanism for the fed. if they start seeing liquidity getting into a worrying level in this balance sheet runoff process, that could be something that gives them pause. romain is right. when you get there, potentially, around the summertime, we could see a turning point, especially the liquidity issue. guy: -- romaine: i want to make a point. the liquidity drying up has been slower here. i think that could play a cycle like -- psychological effect for the fed. if you don't have that bum rush for the door and one short

period of time, does it create panic if it is the slow boil putting the frog in a lot of cold water and turning up the heat slowly? alix: thanks for that. great. i guess we will leave it there. it is interesting to key in on earnings, the demand destruction is real, here, and coming. thanks a lot. really good roundtable, thank you so much for joining us. coming up, what is the next bullish signal to look for in the market? our next guest has a model for it. if there is a reason to be bullish for now, what if in the future? what do we look for? this is bloomberg. ♪

>> if markets keep functioning, that would give the fed the excuse to stop fighting aggressive and start talking in a friendly way for the market easing, potentially. alix: looking back to the question of the day, s&p is up .3%. is there any reason to be bullish? joining us now is jay, who has models for this. jay: the indicators i follow are

not bearish. i am not fully invested. i have a reason for optimism. one of the best indicators i have come across involves new highs and new lows on the nasdaq index. when new lows overwhelm new highs completely as it has done recently, it typically happens near capitulation, not necessarily at the bottom, but very close. the model that i follow has given nine signals since 1990. the most recent one occurred last thursday. the previous age signals saw the nasdaq rise in the last -- next 12 months, the average game was over 40%. that doesn't mean this is going to happen this time, it sounds optimistic at the moment. it is something i am keeping an eye on, it is one of those indicators as the old saying

goes, when the time comes to buy, you will not want to. i think that applies right here. i am keeping a close eye on it. one thing to keep in mind, historically, the previous age signals the average number of days between the signal and the actual bottom is about six to 11 trading days. that is about a week or so, up to a month. the average decline from the time of the signal until the actual low is the average about six to 8%. share a scenario where about a week from now, the nasdaq is 6% to 8% lower. imagine the fear and panic going on at the market. yes, i think if that unfolds that way, would set up a terrific buying opportunity. it is not a reason to be bullish at the moment, but something to keep an eye on. guy: when we get there, if we get there, what do i want to buy? jay: the big problems right now

in the market, everybody knows. inflation, rising interest rates, and poor price action. we did a study at sentiment trader, we looked at when inflation is high, as it is today, and when interest rates are rising, as they are today. when those two factors are in play, since 1926, the top three sectors have been energy, health care and consumer staples. this year, energy has been terrific. xle is over 47% for the year. the other two are down about 9%, which isn't good, but better than the -18% for the s&p. by trading those three together, you are return for the year is over 10%. i think a lot of people would be happy about that. alix: absolutely prayed we get in here, i feel like one thing to make these things different

is, what we have seen with the retail investor over the last two years. i wonder how that flow and sentiment plays into these models. jay: they do not. they are standalone models. that is what we do, we are a research firm. we look at data and all we are looking for is ways to find an edge in the market. we are not necessarily looking at the current environment to say, well, what might happen? we do not try to predict, the question we tell people the answer to, what do we think the market is going to do next? question is for any investor, how are you going to allocate your capital? that is going to decide your fate. to follow-up on that, at the moment, the model i follow right now is 30% in cash, which is very boring, it is not making

much, although it could make more is interest rates rise. it is better than -18% on the s&p. i have capital available if the scenario i talked about before unfolds. the second part is 20% in commodities. which have done phenomenal this week. this year, they are due for a pullback. i did a study a while back. based on reversion to the mean, i would not be surprised to see commodities continue to outperform stocks for the next two to five years. guy: we touched on the equities. let's talk about the duration when we see it. bottoms tend to form quickly. how long of a scenario are we looking at as we bounce into the fall later this year? how short and sharp is this going to be, or is this something you will be

able to trade into? jay: if i focus on the indicator , the new low indicator, the follow-up has been terrific. the last signal was in the late part of march 2020. i mentioned before about how, when a signal comes, you will not want to use it. it was perfect for that part in the pandemic. the previous signal was christmas eve of 2018, followed by three of the most awful days that anybody has seen leading up to christmas even 2018. had a terrific rally. once it starts, the thing i am finding, sentiment is getting overdone to the downside. everybody seems to acknowledge that, but the one thing we haven't had yet, i keep saying this. we have fear, we have doubt, angst, but we do not have capitulation. we do not have people dumping stocks yet.

i think that probably will -- alix: vix at 28, where they need to be to show capitulation? if the vix is at 28, where does it need to be? powered by more than 2,700 journalists and analysts in more than 120 countries. -- jay: i said wake me when it hits 45. when you look at history, all the big declines, it spikes to 40 or 45. guy: some people are arguing that you need to look at signals, stock volatility at this time of -- time around. people are going to be watching carefully. jay kaepell. etf investors are showing signs the u.s. treasury yields may have peaked. we find out why, next. this is bloomberg. ♪

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ritika: another robot for boeing , trying to get airlines in china to root -- outlined several actions they need to take before operating. more pilot training and modifications to the aircraft, boeing says it continues to work with both airlines on regulations. the discount retailer cut it's for your outlook and first quarter results missed estimates on a similar move by kohl's, target and walmart. foot -- shares that footlocker are higher. footlocker said it expects profits and sales to be the highest. alix: the rally fading a bit.

a lot of options are expired -- expiring tied to equities. coanchor of bloomberg etf iq are looking at positioning around these moves. could be a crazy day. what have you noticed? >> i have been keeping my eye on tlt. we have seen a comeback in the bonds. inflation is super hot now. you take a look at tlt, if you look at short interest on this etf, it has collapsed in the past few weeks. 13.7% of tlt's outstanding shares are sold short at the moment. that was as highest 43% at the end of last year. even with that little bid coming back in the bonds, it is down nearly 20% year to date. in fact you are seeing these shorts collapse at this moment, it highlights this broader shift in sentiment we have seen in the markets. the fear has turned from inflation to worrying about growth.

a slowing economy that should benefit bonds, that should benefit tlt. guy: let's talk about the options expiring. what should we expect? katie: $1.9 trillion and aspirations are expected -- it is worth keeping an eye on qqq. if you look at combined call open interests, it is at the highest levels since late 2007, coming in today's expiration. the majority of that is input. call open interest is higher, relative to this funds history. no one knows for sure what to expect on op next day, that is why. there should be volatility coming into this fund. alix: are we noticing any change in short interest or call options? katie: if you look at marcus -- market data, mary that with the

fact you are seeing short interests go up. many people are petting against that, they are -- ties into the broader picture we are talking about, people worried about a slowing u.s. economy. you've got a lot of big names warning about a recession. guy: we will watch for the action. katie joining us about the options expiring. it is fascinating to see over the last five days, what you are seeing. the nasdaq and s&p both in negative territory. we are bouncing. it doesn't feel overly convincing at this point. we got to get through a few bumps along the world. where can you find protection from rising interest rates? we speak with the cofounder and ceo of sycamore tree and capital partners, marcus joining us. we talk about what is happening

in the credit markets, i think credit leaning equities, we have seen a fairly big move in credit. we try to get an idea of what is happening there, is it time to shift out of loans into other assets? we get marks view on all of that. mark okada, sycamore tree capital partners cofounder and ceo, coming up.

alix: we are seeing gains, but how long can the last? abigail is tracking those moves. abigail: this is the week mimicking the week, we have small gains for the s&p 500 and other indexes, but much smaller than we had earlier on the open. on the week, at one point on that rally day, the s&p 500 and

futures had been on pace for a gain. with the bearish action since then, not so much. that means we are looking at the longest moving streak -- losing streak for the s&p 500, going back to 2001. we can see this illustrated. we hear people talking about this, reminds me of 2008, 2001. here is one reason to think, this could be a long rolling, bear market. that bear market was 2000 10 2003. a big drop all or by big gains. we haven't seen that bear market rally yet, but who knows. it is important to remember that today is options expiration, lots of derivative changing hands, the volume could skyrocket. anything is possible between now and the close, even as we have learned on non-options day. as for the big story and he reason we have these big declines, it is all about

earnings, especially for retail. retail earnings, ross stores coming back, that the stock is plunging similar to what we saw out of walmart, target, those stocks down sharply after the day they reported for their quarters. there is netflix. really leading the way, down 30 for -- 35%. this is the story of this earnings season, some of these companies should be brutally punished, not priced in at all, happening in a one-day event. will discontinue, or are we going to see something brighter next week? guy: it would be nice to have a few bright spots. that was a bright spot. abigail, thank you. let's talk about the signs of a bear market. are there going to be signs of a bear market rally? let's talk about this.

bruce richards, spoke to us earlier this week. coax high yields has gone from 4% to high yield of 8%. what we have seen in the marketplace, the markets have adjusted. there was heavy volume those last couple of weeks, there is a lot of capitulation. the markets can nuven to a bear market rally, which we are entering right now. guy: mark okada, great to see you. it has been quite the week. you have seen high yields wiping out sharply, credit marks -- credit markets starting to move. what do you make of the price action? mark: it is an interesting start to the year for credit markets. we have seen high g have the worst start ever in the history of that market. high yields is down over 10,

that would put it at number two on the list. it is interesting that nothing is -- has fundamentally happened within these markets to spray move like that. one of the most important things we are seeing to a start this ugly is that this version -- dispersion is rising across names. the market is starting to punish those companies that underperform, those that have issues passing along inflationary dynamic within their cost structure. that is interesting to us. i think if i were to think about the last 35 years we have been in this business, this may be the first real cycle that we are entering in in the last 20 years. alix: that is huge. that is a big shift. we are moving that fed put, that

is a huge shift, also. you intend dispersion was picking up, which i was thinking there was more idiosyncratic opportunities. where are they? high yields, leverage loans? guy: the same -- mark: floating-rate spread we are doing well on that part of the marketplace. it is more of a defensive call, defense turns it off. if that defense is not taking rate volume, participating in that, being up in quality, it has been -- look at loans, versus high-yield loans, down a couple of points. high yields down 10. that outperformance is massive. i think that continues. this is more about, if this is the start of a real cycle, which

the market has not seen in over 20 years, the game changes. it is not this dialogue i keep hearing on the show, which is risk on, risk off, everything goes down, everything goes up. it is more about being a good credit picker, avoiding things you should not own. those get punished here. picking things that will turn around. there is much more to buy were now then there was a month ago. we are finding things to do that we are getting overpaid for. it is early in the cycle. guy: two questions. what do you think being overpaid for -- i want to come back to the question about loans continuing to outperform high-yield spread what you think you are getting overpaid for? mark: let's take a look at those markets from the top down basis. you've got the high-yield, moving about 8%, better than where it was at 4% or 5%.

loans are near 7.5%. you're stuck taking interest rate and more credit risk with high yields rate on a relative basis, that is a better bet. if we think about high ratio loan debt, the aaa debt is yielding over 5%. that is better than, it is aaa, you are not taking credit risks. you are not making any interest rate risk. your -- that is ridiculous. that a supercheap. guy: do you think that credit risk that you are not taking, a lot of people got into loans because it allowed them to deal with inflation story. we are now moving on from the inflation story to the implications of the elation -- inflation story, which is slow growth. i appreciate where you are

saying we are going up in quality, but are loans the best way to play that? mark: if we are going to a real cycle, this is less about talking about asset classes and more about what you do within those asset classes. if there are going to be winners and losers in all of these markets, when we talk about upping quality in the early part of the cycle, that is the move. there are things in high yields, clo's, loans, that are high quality. they should be fairly resilient in here. balance sheets across corporate america are pretty good. we do not have a fundamental issue yet. borrowers that are finding fundamental issues in their idiosyncratic performance are getting punished. markets can trade down five to 10 points in a blink. it is more a function of doing

your homework, being disciplined, taking advantage of that. that avoids the dynamic we talk about a lot, that is paying off in here. on the flipside, -- yes? alix: we are early in the credit cycle. i wonder, if we are in this tight credit cycle, how long do you think it lasts? what are the phases you are looking for? mark: it could be years. this is a much larger market than we have ever seen. credit as an asset class has grown multiple in the 2001 period, for example. it will take a long time to readjust this. the dynamic the fed put gains on, that is our review. as interest rates have gone in this long-term declining trough, we are starting to flatten out and go back up. in general, that lack of a fed

put means you better be comfortable with what you own. you are not going to get to sell it to someone else later on, so you better be good about your homework. it is going to take a while. it will take potentially years to get through this. guy: one final question. you talked about how gabby the market is. are you seeing liquidity problems? is the market functioning? mark: it is functioning, but i wouldn't say it is completely open. there is liquidity. there is a buyer at a price. there is a reason why it is gapping. i think that makes sense, given the fact it is early in the cycle to adjust to this new

reality of where we are at dispersion. i think people will step in and buy something, we are looking a lot about the names of higher quality that are down four or five points. as that starts to happen, you will see a better functioning secondary market, more flow, that will come in. alix: it was good to catch up. mark okada, sic more tree capital partners cofounder and ceo. we discussed the u.s. strategy in asia with a former official of the office of u.s. trade representative, amy of global advisors. this is bloomberg. ♪

countries, at the united states is not just a strong security partner, which it has demonstrated already, but the president will be rolling out the indo pacific framework in tokyo. he will be inviting other countries to participate in the launch. the biden administration has been busy talking about this economic framework, which has four broad pillars.

the white house signaled there could be as many as 13 participants in this launch of the economic framework, indo pacific economic framework. failure is if the country says, this sounds ok, but we don't think it delivers what the united states must do to become an economic leader. >> can a country sign the agreement and be friends with china? >> that has been a point of contention for a lot of south asian countries. how does he balance? having a strong economic relationship with china, what we have heard for this strong indo pacific framework, the biden

administration watered down some of the agreements to join. they don't have to sign up for something that they are not sure they want to remain in. participation next week in the launch does not mean that all of these countries are going to end up signing onto to this framework agreement. guy: if north korea fires missiles while the president is in the region, how does the united states respond? amy: united states is in a good position to deal with that. jake sullivan talked about that while they were looking at contingencies. north korea has a habit of doing missile launches while there are americans in the region, and of course, they have not done a nuclear test in a few years, so that is a very strong

possibility. i think the u.s. government will reinforce with south korea they will enhance the missile defense system in south korea. the u.s. government has not responded positively to the south korean request that there'd be nuclear weapon stationed on the southern part of the korean peninsula, because it would be so provocative not towards only north korea but also china. the united states feels it has the ability to continue to act with partners and allies, unfortunately less of an ability to work with china on that. guy: great to catch up. amy, thank you very much indeed. coming up, deere hit by cost pressures, because pressures of

its customers, i.e. farmers. shares of the world's largest agricultural maker down sharply today. this is bloomberg. ♪

>> the s&p down by 2/10 of 1%. a big part of that is deere, the stock down by 11%, at one point seeing the biggest drop since march 2020. the analyst call going on right now. jojo follows agricultural sectors for us, i know you are listening from the call. analysts are calling this messy. what happened? joe: a lot of people were wondering, you guys miss revenue by about $1 billion of what the average estimate was. they were trying to figure out,

we've known about supply chain issues. what is going on? they said, back half of the year, we expect the supply-chain situation to remain constant. they don't see it getting worse, but they don't see it getting that much better. it also comes timing-wise at a bad time when the rest of the market is getting crushed by supply chain issues, target and walmart coming out with their information, coming out and saying supply chain issues and inflation was hitting you, just poor timing all around. guy: we kind of knew that. what struck me is that farmers are starting to feel the price, as well. add cost is going up, diesel is going up, and as a result, it

will mean they are less able to purchase new equipment. joe: one of the things we have had is the trump card for deere, regardless of war, farmers still need equipment. we've been talking with a lot of farmers out in the field who said, listen, these fuel prices are starting to get to us, and hearing deere say it, it's much more impactful to the market. there's a worry that maybe these farmers won't have the cash to spend on new equipment. maybe they will run on old equipment and keep doing repairs, and that is a big concern in the market. guy: we will leave it there. we will let you get back to the call, bloomberg's joe deaux on what deere management is saying now. we are talking next about the european close, coming to the end of what has been a bumpy week. we will talk about the economic story, as well. european stocks, just north of

430 at this point. the eurodollar, 1.05. we are going to talk about the economic picture in europe and a little bit more detail. where doe the eurozone go next? where does the u.k.s go next? that conversation is next. this is bloomberg. ♪ ngs. what's up, peyton? good morning, peyton. hold for peyton. they'd huddle.... welcome to the peytonverse. such a visionary. game plan... you go. no, you go! and call audibles... double our investment in omaha! omaha! omaha! omaha! or you could use workday. omaha. the finance, hr and planning system used by over half of the fortune 500. for a be-agile-like-an-mvp world. workday. for a changing world.

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>> the countdown is on in europe. this is bloomberg markets: european close, with guy johnson and alix steel. guy: friday, may 20, european stocks running into a close -- i '